Highlights

• Management meet up. We recently met up with Mitrajaya’s Managing Director, Mr Tan Eng Piow and Group Finance Manager, Ms Cho Wai Ling.

• Off to a good start. While Mitrajaya’s job wins were tepid in FY15 at RM469m, the momentum has picked up this year with the YTD sum at RM450m. Management guides that some of the FY15 tenders only came to fruition early this year. Its orderbook currently stands at RM1.8bn, implying a decent 2.4x cover on FY15 construction revenue.

• Out to grab more. Mitrajaya has submitted RM2.5bn worth of tenders comprising RM1.7bn in building works and RM800m infra based. It is also preparing for another RM2.5bn worth of tenders to be submitted. Management is targeting for another RM1bn in new job wins which would bring the full year sum to RM1.45bn if achieved. Our full year target is more conservative at RM800m.

• What’s next? We understand that Mitrajaya is in the running for private sector building job potentially worth RM400m which could by awarded by mid-year. Apart from that, it is also bidding for some affordable housing jobs.

• Tilting to infra. Mitrajaya is placing a greater emphasis on infra bids in view of the softening property market. It tendered for 2 packages of the SUKE and DASH highways. Apart from that, it has also been prequalified for the Sarawak Pan Borneo Highway where there are 8 remaining packages to be awarded. RAPID is another area that Mitrajaya will be focusing via subcontracts from the main EPCC contractors.

• Station opportunities. For MRT2 and LRT3, Mitrajaya is looking to participate in the station works. We reckon that Mitrajaya has a good chance for these jobs given its experience with the stations for the LRT extension.

• Backed by unbilled sales. While incremental take up rates for Wangsa 9 has been slow at a blended 55%, we draw comfort in its overall unbilled sales of RM228m which implies a healthy cover of 2.4x on FY15 property revenue.

Risks

• Lower than expected orderbook replenishment and weak property sales are key risks to watch out for.

Forecasts

• We tweak FY16-17 earnings by -1.6% and +0.4% as we update our model following its annual report release.

Rating

• Maintain BUY, TP: RM1.88 (+54% upside)
• Mitrajaya offers decent earnings growth prospects with a 3- year CAGR of 11.2% at an inexpensive FY16-17 P/E of 7.9x and 7.2x respectively.

Valuation

• We lower our P/E target from 12x to 10x to reflect the softer broader market conditions. This is partially offset by the rolling of our valuation period from mid-CY16 to FY16. All in all, our SOP based TP is cut slightly from RM1.98 to RM1.88 which implies FY16-17 P/E of 12.2x and 11.1x respectively.

Source: Hong Leong Investment Bank Research - 5 May 2016